CBO: Fiscal cliff will mean recession, rise in unemployment

The Congressional Budget Office offered a sobering assessment of the economic implications of plunging off the fiscal cliff Thursday, just as lawmakers prepare for a fight over taxes and spending.

If Congress and the Obama administration allow scheduled tax increases and spending cuts to occur, the economy will shrink by 0.5 percent in 2013. The unemployment rate would soar to 9.1 percent — up from 7.9 percent today.

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PHOTOS: Fiscal cliff's key players

Senate Finance Committee Chairman Max Baucus (D-Mont.) asked for the report and said the findings are another reminder of the need to find an alternative to the tax increases and spending cuts that make up the fiscal cliff.

“The consequences of inaction will deliver a dramatic, short-term blow to the economy,” Baucus said in a statement. “We need to build a bridge over this fiscal cliff. We need to work together — Republicans and Democrats — on a solution that provides some certainty to American families and businesses, while also bringing down our deficit and debt.”

An aide for House Ways and Means Committee Chairman Dave Camp (R-Mich.) said the report “confirms that raising taxes on all taxpayers will result in fewer help wanted signs hanging in the windows of businesses across the country.”

“Job creators agree and have made it clear that raising taxes will result in a weaker economy and fewer jobs for the millions of Americans struggling to find work,” the aide said. “They are depending on the administration to provide the certainty they need to invest, hire and plan for the future. Achieving that certainty begins with stopping all tax hikes and focusing on pro-growth tax reform. The House stands ready to work with the White House and Senate to achieve those goals.”

The CBO said the outlook would be much more positive if Congress extended some or all of the expiring tax cuts and blocked the $109 billion in spending cuts slated next year for discretionary and mandatory programs.

If Congress blocked the spending cuts and extended all of the expiring tax cuts — except for the payroll tax break — the economy would grow by 2.25 percent next year. Adding the payroll tax cut and an extension of unemployment benefits would nudge the growth closer to 3 percent.

The report also demonstrates that extending all of the soon-to-end tax cuts would provide the biggest boost to the economy.

Continuing the breaks for all taxpayers would boost GDP by 1.5 percent. An extension just for families making less than $250,000 and individuals earning less than $200,000 — the level that Democrats are seeking — would expand the economy by 1.25 percent.

Kelsey Snell contributed to this report.

This article first appeared on POLITICO Pro at 5:20 p.m. on November 8, 2012.

Readers' Comments (43)

We stop believing these guys a long time ago. just fix the problem you were sent to Washington to fix. reduce defense expeditures,means test entitlements,end tax breaks for wealthty. this is not rocket science idiots

We stop believing these guys a long time ago. just fix the problem you were sent to Washington to fix. reduce defense expeditures,means test entitlements,end tax breaks for wealthty. this is not rocket science idiots

So we lost the election. I keep hearing how we must rethink our position on issues such as woman’s heath issues, taxes, immigration, etc., etc., etc. In keeping with the capitulation theory I have come up with the following suggestion for conservatives to consider:

• Woman’s health issues

a. Free contraception for all women regardless of their age.

b. Abortion on demand even up to 2 weeks post birth, just in case the baby came out looking like the milkman’s kid.

c. And to one up the libs all small breasted woman should have the right for and access to free breast implants on demand because we all know bigger breasted woman are happier and not psychologically damaged crossing their arms over their chest like we don't notice.

• Immigration

a. Grant US citizenship to all immigrants (legal or otherwise) once they land foot on US soil.

b. Set up stands along with southwest border manned by government servants to help these new citizens immediately file for food stamps and unemployment benefits because they do not have jobs and cannot buy food for their kids (oh the humanity of it all).

c. If an immigrant is older than 65 then automatically enroll them into Social Security and Medicare.

• Taxes

a. Anyone earning

b. Anyone earning > 100k annually should pay a rate reducing their total take home pay to 100k

c. No write offs for anyone except those earning

d. All capital gains must be returned to the government on close of transaction. If capital gains revenue is

• Social Security

a. COLA increases shall be 4% minimum annually to cover the rise in rates and other stuff

b. Senior citizens must be reimbursed for their electric and/or natural gas bills so they can get through the winter months.

c. Free food stamps for all senior citizens.

• Health Care

a. Anyone earning

b. Anyone earning > 100k annually should have to pay up the wazoo for any and all health care they decide to take advantage of

• Food Stamps

a. Anyone earning

b. Anyone earning > 100k should have to starve until they get it right.

Just a few ideas. Seems the libs buy off their voters and since we must capitulate according to the liberal looneytoons then we might as well play their silly game and one up them bankrupting the country quicker so we can straighten it up sooner.

If the CBO says that the “fiscal cliff” means a recession, then you can be sure the reliantly obedient Republican conservatives will floor it, forcing is over the “fiscal cliff” so that they can then say that Obama caused a recession.

They are beyond dishonorable at this point.

They are treasonous in their refusal to compromise. They are traitors for trying to destroy Obama and America in an effort gain more power for their beloved Republican party.

The US is broke. Government deficits are de facto evidence of a government gone wild. We’re careening toward Greece. Entitlements are the root cause of our fiscal woes, and the Chinese are coming for our grandchildren. How many Americans believe this garbage? My guess? Most of them.

Pete Peterson has won and the American people have lost. There is no effective counter narrative, not even from the left. Nearly all “progressives” have accepted the fundamental premise that the federal government is like a great big household. That it faces the same kinds of constraints that you and I face. That it should spend only what it takes in and that deficits are morally and/or fiscally irresponsible. President Obama told the nation, “We’re out of money.” All of this is utter nonsense, as readers of this blog know, and it leaves progressives in the weak position of pointing at the 1% and yelling, “Get ‘em! They’ve got all the money!” Want to care for seniors? Tax the 1%. Want safe roads, good schools, investment in alternative energy? Tax the 1%. The problem, of course, is that the 1% tend to fight back …. and win!

The truth is, we’re not broke. The US dollar comes from the US government (not from China, as we’re led to believe). The US government is not revenue constrained. It is the Issuer of the currency, not the User of the currency like you and I. It plays by a completely different set of rules, yet it behaves as if it is still bound by the shackles of a gold standard. It behaves irresponsibly when it proposes policies to reduce the deficit when unemployment is high and inflation is low.

We’re letting millions of Americans suffer because Pete Peterson and his ilk have convinced virtually everyone that we face a fiscal crisis in this country. We live in fear of the Chinese, the Ratings Agencies, the Bond Vigilantes, Indentured Grandchildren, and so on. And this fear is used by politicians on both sides of the political aisle to sell “sacrifice” to the rest of us. And we keep buying.

And here’s the really sad part. It will never be enough.

http://neweconomicpersp...

The U.S. is no longer bound by gold standard requirements for balanced budgets.

None of the media economists realize that the United States, issues its own currency and never faces the issue of insolvency, unless politicians decide not to pay our bills. But operationally, as Greenspan states in the short video below, The United States can pay all of it obligations denominated in dollars because it can never run out of dollars."

In the video the President says "...we're out of money". This is nonsense. No one has briefed the President on the real monetary facts on how the Treasury and the Fed cooperate to pay our bills. What's worse is that no one has briefed the President on current law which authorizes him to pay our bills with debt free currency completely, sidestepping the issue of more debt.

It would be revelatory to hear the truth about our modern monetary system and how it functions since we left the gold standard. Prof. Stephanie Kelton, Univ. Missouri Kansas City would be a superb guest for your show. Here's a link to her latest seminar http://tinyurl.com/chfzj9j and another link dissecting the Peterson Commissions faulty premises on the budget deficit.

Below I've summarized the fundamental axioms of our modern monetary system and included a solution obviating the debate over the fiscal cliff and Sequestration.

--------------------------------

Axioms, false premises, and Presidential Duty.

Because 31 USC 5112(k) is current law which eliminates the fiscal cliff problem and creates no financial burden for citizens or the Federal government it is the option the President is bound by his oath of office to implement.

This video with the President, Greenspan and Bernanke tells America that the Federal Government does not need to raise taxes or borrow to spend. These admissions categorically debunk, indeed refute claims by deficit hawks, doves, and terrorists, and the members of the Peterson Cat Food Commission, that the government must cut and tax to reduce the deficit

http://www.youtube.com/...

So where does the money come from? It could come from Treasury issuance of proof platinum coins and the resultant profits which are Seigniorage.

Current legislation, 1996, 31 USC 5112(k) authorizes the President to issue debt free currency, in the form of proof platinum coins and use the profits (seigniorage) to fund Congressional appropriations. http://firedoglake.com/...

"Mint seigniorage is legally indistinguishable from Fed seigniorage as miscellaneous receipts revenue, it offers an escape hatch (or more like a subway tunnel really) if Congress refuses to increase the statutory debt limit. The Secretary has rather broad authority to mint coins, Congress was apparently feeling generous when it authorized platinum coins in 31 USC 5112(k) (“with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe…”).

If deficit spending was paid for (eliminated actually) with miscellaneous receipts revenue generated by selling the Fed jumbo denomination platinum coins, and since the Federal Fund Rate can now be pegged with Interest on Reserve payments in lieu of selling Treasuries to drain excess reserves, Treasury could fund govt operations indefinitely without ever raising the statutory debt limit." Source: beauwolf, www.firedoglake.com

"But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good...

If the Government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government?

The People.

Therefore, it is the people who constitute the basis of Government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency… instead of the bankers receiving the benefit of the people’s credit in interest-bearing bonds?”

Thomas Edison,

quoted in NY Times, Dec. 6, 1921

http://prosperityuk.com...

"If you think about it, it does seem odd that the US Government is the monopoly supplier of US dollars and yet our politicians go through life thinking the government will run out of money unless it can borrow more.

Of course that’s not true, the coins in your pocket are legal tender and yet were not issued against debt. They’re minted by the US Government, backed only by the gilt-edged credit of the American people, no one is paid interest on them and they don’t add a penny to the statutory debt.

What’s more, the use of coins as legal tender is scalable, they could replace the use of Treasury debt sales. No, you wouldn't have to carry more coins in your pocket. Nothing would change except Treasury would be credited by the Federal Reserve for the sale of six, interest-free Treasury coins (presumably of large denomination) with a face value of $4 trillion instead of interest-bearing Treasury bonds."

Source Joe Firestone, www.correntwire.com

Because 31 USC 5112(k) is current law which eliminates the fiscal problem and creates no burden for citizens it is the option the President is bound by his oath of office to implement.

Secretary Geithner will likely veto this alternative since it does not include the bond market.

A small amount of import duty on all imported goods would do wonders for our economy . It would add a little protection for the national labor and at the same time the wealthy would not be taxed more .

But free trade was invented not just to increase corporate profit but to kill the national labor . Instead of fixing the revenue problem from the top down it should be fixed from the bottom where it will do the most good for the nation .

The revenue from increased taxes on the wealthy will only be spent by Ryan and his Budget Committee on ways to give it back to the wealthy . Like increases in energy , health care insurance , and all the necessities of life .

We must get away from the perpetual Republican speak of taxes and move towards the general economy repairs .

Sounds good to me. Bush added $5 Trillion dollars to the National Debt. Barack Obama will add $10 Trillion dollars and Hillary Clinton could add another $10 to $15 Trillion. By the end of Clinton's 2nd term, Democrats will have the record of adding about $30 trillion dollars to the national debt, while Republicans will have a record of about $8 Trillion.

In other words. Democrats will be known for giving us most of the debt in America. I like it!!!

The middle class was the most prosperous under Ike and taxes for those making over 5 million was at a 91% rate. The rich were doing fine as well as the rest of the country. Union membership was at its highest. As union membership began to decline in the 60s so did the wages of the middle class. Fiscal responsibility is not the answer at this time. Just ask Greece. We need taxes raised on those making the most money (their income has gone up the most over the last ten years) and spend money on infrastructure. That's what FDR did to an extent and that is what Ike did (the national highway system).

Recession? Once the end of the year arrives, we'll only wish we still had a recession (that never ended in '09 as the Obama experts claimed). We'll be in a depression with stagflation and super inflation. Get ready, it's going to be a bumpy ride for the next four years. Anyone who voted for the re-election of the Wonderkind better not complain when this country collapses. You asked for it, voted for it and you got it.

If the CBO says that the “fiscal cliff” means a recession, then you can be sure the reliantly obedient Republican conservatives will floor it, forcing is over the “fiscal cliff” so that they can then say that Obama caused a recession.